If we look at the price to earnings ratio or P/E ratio for the S&P 500 right now it’s right around 30 which is nearly unprecedented. It was only a lot higher right before the dot com bubble, and also very briefly during Covid. It was also high right before the Great Depression, but not as high as 30.
Furthermore, the S&P 500 has gained more than 20% for the last two consecutive years. This is also a scenario that doesn’t happen all that often and generally speaking the more times you go past 20% in a row the less likely it is to keep maintaining such an amazing run.
And then there is corporate debt. Corporate debt is sitting at around 50% of the GDP, which is higher than the amount of housing debt that proceeded to the housing crash, which was about 45%. Similar to the housing crash we have a lot of corporations with outstanding debt that has a very low credit rating. So if there were to be a crash, there is a strong likelihood that a lot of corporations would not be able to pay off their debt and would go bankrupt or have to be bailed out.
So there’s a lot of numbers here that put us in record territory or near record territory and I’m moving my investments to cash and bonds and waiting this out. I’d rather earn 4% plus on interest for a little while as it certainly looks like there’s a 20% correction in the near future. That will be a great buying opportunity.